I have tabled a few questions to find out more of the details behind the public sector wage freeze the government has introduced. I have no disagreement about the general thrust of the policy. One of the ways of controlling the growth in public spending is to keep pay rates level for a bit after a period of strong absolute and relative gains for public sector employees. The policy is turning out to be tougher than originally imagined, because inflation is so much higher than planned. This means a bigger reduction in real living standards for those with frozen pay.
I also agree that the lowest paid should be exempted. This is especially necessary given the high inflation, making it very difficult for people to balance family budgets from low pay.
The issues I am trying to tease out are these:
Does a pay freeze mean a freeze to all age and experience related increments?
Does it mean no bonuses, or no increase in bonuses?
What is the approach to rewards for exceptional service or for hitting tough targets under a bonus plan?
What happens to someone who gets promoted or takes on additional responsibilities?
I think the answers vary by departments. It will be interesting to see. My suggestion is a pay freeze should mean an end to age and experience increments, but should not mean a refusal to pay performance bonuses. I also think if someone takes on more responsibility and work, as part of a cost reduction or efficiency programme, they should be eligible for a pay rise. Pay rises for promotions should be looked at in the light of the overall pay of the individual but should not be ruled out in principle.
I would be interested to hear bloggers thoughts. At a time of 5% RPI inflation keeping pay increases down to say 1% would be quite an achievement. I would not expect a pay freeze to deliver zero. I would expect the overall pay bill to fall, as I would expect employee numbers to come down.
May 15, 2011
The economy will grind to a halt as private spending shifts to essentials only, unless you happen to be the select few in something like the public/private banks. This crash landing may result in few survivors. When the FCO sells off all it’s wine cellars, then I will know things are equally tough. Until then, give people a chance to defend against rocketing prices, after all – we can’t blame wage inflation for that, can we?
May 15, 2011
Relative to the private sector and taking, pensions and other terms (sickness pay etc.) they are very considerably over paid. Perhaps by as much as 40% or so.
The main emphasis however should be to reduce numbers and activity and perform the essential activities efficiently. Much of what is done is totally pointless or worse just inconveniences the private sector (and the public sector) or forces it do pointless thinks too.
Cutting pay by 5%, relative to inflation, after tax/tax credits adjustments is not that bad they will still be ahead, for several years, of the poorer private sector who are paying for them in tax.
Changes to employment law, redundancy, equality legislation, health and safely and the rest would hugely help both private and state sector. What effect will the no retirement at 65 have on the state sector wages bill?
If the government actually want some growth and to actually win an election outright then they need to get a move on. The signs so far have been a huge disappointment.
May 16, 2011
Agreed entirely. Pay freeezes are dodging the issue annd simply storing up problems for the future. Reducing numbers will be the most sensible way forward.
The coalition is treading a very dangerous path. Having conspired to cause inflation there is a possibility that Unions will start a wages push and then the whole thing gets out of control. Reducing numbers in the Civil Service should avoid this but a wages freeze may well be red rag to a bull when interest rates start to increase
May 15, 2011
What about those on more or less fixed incomes, people on pensions, who are charged extra taxes to fund public sector increases whilst not seeing anything like such increases themselves?
My general observation is that public sector pay should be managed such that it doesn’t increase the effective inflation suffered by everyone else. It also should not jeopordize the overall goal of reducing public sector costs.
1. Pay should match responsibilities and achievements not simply time in service so freeze all age and experience related increases, if not abolish them.
2. If you want to pay someone a bonus, fund it by restraining in other areas but be transparent so taxpayers know they are getting fewer bins collected so Fred can have a bonus. Alternatively self fund bonuses – perhaps all those elegible should sacrifice say 5% of salary to a bonus pot that is then distributed based on peer reviewed merit.
3. Delivering against increased or more challenging objectives should be rewarded by promotion or bonus. However I don’t think it should be a simple percentage which rewards a senior person more when most times the actual achievement was by direct and indirect reports.
4. Increases on promotions like bonuses should be on results and self-funded so the wage bill increase is zero at best but must not be above the CPI rate of inflation.
May 15, 2011
Acknowledging the low-paid areas in the public sector is sensible some may be on the margins of financial viability. (This is also true in the low-pay area of the private sector). It is probably better to keep those people in work until the private sector growth gains traction.
Increasing prices of essentials are a most likely a consequence of QE given to the banks via monetary authorities. The low interest rate also has this effect.
So mitigating the banking problems created by a deflating debt bubble- deflation have given us QE (inflation) and 5% rpi.
1) inflation cannot be allowed to get out of control.
In the public sector:-
2) no pay-rises above the £35k mark period.
3) no automatic replacement of leavers.
4) Offer pro-rata part-time roles ( aim selectively to reduce wage bills).
5) Offer unpaid sabbaticals.
6) Consider if and why government is top heavy in salaries and reduce them and prevent abuse and revolving. (Maximum salary in public sector?)
7) Place a monetary capital limit on defined benefits scheme equivalent to £25kpa approx £500,000. After that no further state provision.
8) Consider a sovereign pension fund so all can join on same terms subject to a cap as above. This would be for state and private workers alike until cap is reached.(Like Singapore Fund).
9) The moral case would be easier if the MEP’s, MP’s , H of L reduced their numbers, pensions and perks significantly.
10) Remove the right to strike for systematically important areas, tfl and instead have arbitration binding if needed.
11) End the compulsory BBC tax – use £3bn/£4bn of that to fund something useful.
12) End Road Tax and move to fuel tax/road pricing.
13) Merge all public pensions schemes into one with same rules or 7),8).
I hear deflation is now re-asserting itself above the QE, please target any further QE at manufacturing, high employment industries via NI tax cuts and let interest rates rise. Maybe a few more bridges etc at congestion points etc.
Not everyone is fortunate to have a job, and some do not receive benefits either so are reliant on diminishing savings or small fixed incomes so please bear that in mind as you continually subsidize our banking systems, please encourage self provision and moral hazard. Banking will be irrelevant if we are all low income/benefits or public sector employees -with a super rich oligarchy.
May 15, 2011
Re point 7 spot on. Hutton fumbled the propsed Tory cap of 60,000 on public sector pensions.
May 15, 2011
You say “The moral case would be easier if the MEP’s, MP’s , H of L reduced their numbers, pensions and perks significantly.”
Indeed – but not much chance of that, other than a few fig leave gestures, as they vote for it themselves. The have even legislated to change the pensions rules, tax laws and taxable expenses rules for these “special” sectors. Clearly the tax rules for mortals can not apply to them without modification.
It is essential to the EU project that the fig leaf of EU democracy (MEPs) are hugely over paid and over pensioned otherwise they might actually respond to the voters interests rather than that of the party for once.
Reply: MPs have recently voted to cut the numbers of MPs
May 15, 2011
Some of us have no increases in income, actual reductions on returns from our savings, which we made after paying tax on our earnings, and uncontrolled inflation. What about that?
May 15, 2011
Brian
Some people especilly the self employed have suffered very, very large reductions in income for the past two years, indeed many of these people would feel very fortunate indeed to earn the same as in previous years, given the present state of the construction/home improvement industry.
The recent rise in VAT to 20% has killed off any chance of a recovery in these areas. Meanwhile the cash/barter workers in this industry seem to be getting more numerous by the day, judging by the amount of work both myself and collegues are NOT getting when competing with such people for contracts. Hence my reason for winding down, getting out and retiring.
Customers very often complain about the amount of tax they now have to pay when improving/maintaning or extending their home, with the simple statement of why should I pay the government 20% of the cost for simply repairing/improving my house.
Want to build a new property, then its Zero rated for VAT, but then very often the local authority want many thousands of pounds as a fee for granting planning permission, under 106 agreements.
John, guarantee after you have asked the question, you will find that public sector workers will still get rises within their wage scales due to length of service, that is until they are at the maximum level on that scale. Thus public sector workers have been getting two rises per year, until they reach the top of their scale.
May 15, 2011
I think the tack often put forth on this site of not filling positions when people retire (or filling from within and letting another position fall empty somewhere down the line if it is vital to fill it) would yield better results than this exercise. One does suspect that those with a little influence will be able to get their pay raised by age & experience or by shifting themselves into a different pay band.
I suspect the people who will lose out most in this will be ordinary workers slogging away just above the cut off point. If you smoke, enjoy a drink and drive to your low level job in the public sector things can’t looking too good.
It will be interesting to see what the numbers by department are when they come out.
May 15, 2011
It’s not enough to change the level of pay – public sector workers have to be paid the same way as everyone else . Until this is done there is no hope of the lot of the masses improving .
This means scrapping defined benefits pensions . How can the Hutton review be taken seriously when it rules this out from the start and also did not consider pensions provision within the private sector and private pensions ?
All he has done is come up with a few tweaks that allow the situation to continue basically unchanged so politicians of all parties can agree to kick it into the long grass for another 40 years .
MP’s should have to transfer to defined contribution even if the rest of the public sector remains defined benefits .
The public sector is so diverse with many disparities in it that a one size fits all policy is not going to be equitable .
A met police constable would be a higher rate taxpayer after basic training if the cost to the taxpayer of providing their pensions benefit was calculated properly .
Why is this so far in excess of what a teacher gets ?
My experiences and those of my associates in the private sector is those for whom pay has been frozen are the lucky ones ; the rest have to work harder for less in cash terms .
The bottom line is that whatever largesse our friends in the public sector have wrought , it is not the cause of our demise .
Super concentration of wealth is what has lead to impoverishment .
If the powerful do not learn to curtail their greed then the innevitable result will be riots on the street – which I suppose answers the question of why police are paid more than teachers .
What sort of country do the super rich want to live in , one like India ?
May 15, 2011
India growth rate circa 9% PA
May 15, 2011
The World Bank estimates that 80% of India’s population lives on less than $2 a day other sources say 77% live on less than $0.50 a day. With over 42% of children suffering from malnutrition. Your simple disingenuous fact is on par with saying that poor people in Britain are better off than they were in the 15th century. Not relevant to anything in the here and now.
Your fantasy of Britain becoming like Switzerland or Hong Kong is just that. Britain is to big and diverse, on the other hand to follow America we are to small. The poor would be come at least 10% more poor if we followed their system. Absolutely socially unacceptable.
May 15, 2011
The poor would be better of if there are more and better paid jobs available. My policy of deregulation, easy hire and fire, lower taxes and a smaller state would give growth, more jobs and the poor would be richer too.
Why do you think they would not be? You cannot have it that we need to be larger like the US or smaller like Switzerland. We can just be eight Switzerlands or eight Hong Kongs but with Hong Kong tax rates.
May 15, 2011
Is it lifting people out of abject poverty though ?
May 15, 2011
Yes certainly better than no growth would.
May 15, 2011
I do not feel overly qualified to comment; however, I find myself unable to endorse the penultimate paragraph: as soon as there is a ‘pay freeze’, inevitably there will be those who will attempt to replace cost of living increments with payments for ‘performance’ or ‘taking on more responsibily’ (enhanced job description). There is also the issue of meeting ‘competence’ or ‘performance’ targets, per se. Hospital consultants were given never-ending performance payments for being above average. GPs got a stiff pay rise recently and at the same time lost responsibilty for 24×7 care. They are also entitled to additional payments for proactively screening patients for conditions deemed significant by some dweeb in the DH and for other indicators. At the same time we read that, many patients are dying because of the repeated failure of GPs to perform a correct diagnosis even after multiple presentations. Would I be alone in thinking that the most important functions of a GP are, firstly, to repond to the claims on their time of a sick patient and second to be able to spot a case requiring (immediate) hospital treatment?
In the first place, public sector workers should be properly qualified and skilled to perform their work and secondly they should do it. It seems to me wrong that public sector workers are deemed to need bribing to do the job corresponding with their job title and for their Whitehall bosses, no doubt, to be awarding themselves ‘performance’ payments for concocting ‘performance’ related schemes. Furthermore, some workers will be poor because they are not qualified for their role, either because they are not properly qualifed or because they are insufficiently able to do the work, in practice. Let’s stop inventing unnecessary ways of spending more taxpayers’ money. That might seem harsh in light of all the bankers who have been rewarding themselves for enhancing the National debt, but I don’t endorse tht either.
May 15, 2011
I thought that our rail system was publicly owned, but according to various newspapers their workers are to get a 10% pay rise, apparently to avoid strikes during the Olympic Games and it would seem that this was sanctioned at the “highest levels”.
It shows blackmail still works and the government is still prepared to go in for appeasement.
Surely management should have stuck to its guns, not given in, and possibly offered a bonus if there was no industrial action. What is the probability that the RMT will still take some action and even more appeasement money will have to be paid?
We need a new Mrs Thatcher in charge.
Meanwhile pensioners and non-militant public sector employees, like nurses and care workers, will suffer.
May 15, 2011
Surely if the train are on strike these athletes could just run, cycle or walk to the games as a warm up.
May 15, 2011
JR it is right that inflation can erode salaries but worth noting also that it is eroding the real personal debt with negative mortgage rates being a prime example. Millions are using to this as an opportunity to reduce their debt.
We accept (reluctantly) that there is a lack of political will to raise taxes significantly and that most of the government spending is off limits to savings, health, defense education etc so that leaves welfare and public sector pay. Progress has been made in planning savings on welfare benefits but little has been achieved in public sector pay.
The whole premise of cash bonuses for public sector workers is wrong at this time when everyone is experiencing the painful outcome from the Brown government years of arrogance and ignorance that Labour could finance public spending with more borrowing.
Any public sector bonuses should be limited to non-cash incentives. Traditionally it has not been possible for public sector workers to have bonuses paid in shares but given that the government is now a major shareholder in the banks is it now time to allow public sector workers to be paid bonuses with these bank shares in lieu of cash?
Kenneth Rogoff from Harvard has said that median inflation between 1914-2006 has been 5% and convincing argues in his book “This time is different; Eight centuries of financial folly” that inflation helps in deleveraging of debt with less to pay back. Others comment that with extremely low levels of growth after the crash it would be more dangerous to risk deflation and then to experience the ‘lost decades’ like Japan has seen. But by far the greatest danger is that the markets lose faith in the governments determination to control public spending and reduce debt.
May 15, 2011
I too have read this book. I seem to remember the conclusion being that major banking crises almost always follow house price bubbles and global trade/capital flow imbalances. Such crises cause years of low growth and lead to knock on crises of default and inflation (as we are seeing in Greece, Ireland and North Africa).
The key is surely to stop the house price bubbles in the first place. Something Germany seems to manage to do well, hence it is growing well. Germans don’t see house price and rent inflation much differently to any other inflation – they see inflation as bad whereas the highly leveraged British household sees inflation as good.
But inflation kills growth, hence at 4%+ inflation the UK presents weaker growth than the major Eurozone economies which have 2%+ inflation. Without GDP growth the UK economy will not improve. But UK voters don’t want GDP growth, they want their beloved house price bubble.
What if markets lose faith in the government’s ability to control inflation and interest rates rise to compensate for that? As I say, inflation kills growth so high inflation could make it harder to the UK to sustain it’s high levels of public and private sector debt.
People who think inflation is the answer are delluded. The inflation will come from rising wages and currencies in the rest of the world against stagnation and weak currencies in the UK. This will be an inflationary squeeze on living standards, not a price/wage spiral that will reduce the size of your mortgage/make your house price go up!
We’re paying for the folly of the house price bubble and massive trade deficit. Get used to it!
May 15, 2011
You say “We accept (reluctantly) that there is a lack of political will to raise taxes significantly”.
But raising tax rates decreases growth pushes investment and wealth overseas and actual tax revenues reduce – so political will or no it is simply self defeating.
May 15, 2011
You may want to compare your answers to the ONS “index of labour costs per hour”.
http://www.statistics.gov.uk/StatBase/Product.asp?vlnk=14016&Pos=&ColRank=1&Rank=240
Particularly “sector level” and “growth rates”. The public sector “total other costs” would be worth a question to the Minister.
May 15, 2011
Does a pay freeze mean a freeze to all age and experience related increments?
The answer is no. You’re right to recognise that people moving up the bands of their NJC payscale, and being moved up to the next one will counter the pay freeze. I’m not sure how you can go about changing this though.
Younger public sector workers already get frustrated about the old timers who sit around on fat pay packets playing solitaire and waiting for their pension. What about regradings for passing professional qualifications also? That’d be a bit rich, you spend years of your life studying for a qualification you’re told you need to get onto a proper payscale then it turns out you have to remain on your ‘unqualified’ pay scale forever while again, unqualified old timers sit back reading the newspaper on 30% – 40% more pay than you.
Younger people are feeling the squeeze much more because of housing. We don’t gain any direct benefit from zero interest rates and our rents are skyrocketing in some regions. I’d already be better off living with my parents doing a minimum wage job than I am working as a supposed professional in local government in the south east after you take housing costs into account.
If they made it so I can never get a pay rise ever I think I would just pack it in and move home again. What would be the point? The way rents are going in a few years I’d be living a lifestyle akin to being a student again.
May 15, 2011
Why not?
Ask yourself quite honestly whether you would do the same work if it was voluntary.
Well, would you? What are you achieving in your one and only life?
Factory work, moving to somewhere where your contribution is really appreciated (Far East), teaching or even becoming a Vicar might well do much more good to society.
May 15, 2011
No, I wouldn’t work for nothing and I don’t work to ‘do good’, nor do I consider myself some sort of moral arbiter over what constitutes ‘good’.
By moving from a temporary job in one region to a permanent job in another I have already taken a 35% cut in disposable income and I don’t intend to take any more cuts.
Pretty much everyone else with my qualifications and experience will not work where I am for the money I get. Most are tied down with mortgages and kids. If you didn’t buy a house down here before 2002 you never will on a local authority salary below director level without some sort of windfall. And most Brits seem to consider renting to be worse than cancer.
Hence I have a safe permanent job in a nice place to live at a time when a lot of other my peers are losing theirs in regions with no jobs to go to or threatening strikes over 5% pay cuts and suchlike. But if anyone thinks I won’t be angling for pay rises and promotions from now on they have another thing coming.
I’ve taken my cut, from having £35 a day in my pocket after rent in my last job to £20 now. I don’t intend to see that fall any further.
May 16, 2011
Steven
Good luck with your new job. If you have £20 per day after your living expenses are in permanent, employment, with a pension scheme and sick pay, spare a thought for some of the self employed building/construction industry workers who are now in some areas having to compete with imported labour who are prepared to work for £35.00 per day. from which all living, travelling and cost of tools, vehicles and insurance have to be met.
How this imported labour can survive on £35.00 per day is another story, and usually involves gangmasters or syndicates.
May 15, 2011
My experience of performance bonuses in the public sector is that they are usually nominal and very frequently paid in full. This compares with the private sector where they were linked to tough performance objectives and rarely was more than half a bonus actually achieved.
If performance objectives are to be paid in the public sector they should never be more than 15% of salary when paid in full, which should mean that the average payout would not exceed 7.5%. Even more important consolidation of earned bonuses into salaries in later years, also found in the public sector, should be completely banned. This is a typical method of union negotiated backdoor salary rises for middle and junior management.
May 15, 2011
It might be helpful if salary structures in all areas of public service were broken down to be determined locally. Demand for labour is elastic and there can be good reasons to pay different rates in different places. It could also be someone’s responsibility to manage the pay budget for a given service in a given area.
May 15, 2011
I make my comments as a retired police officer. Furthermore, I worked for a local Council for a year after my retirement. Whilst I understand the need for wage restraint for the public service there is also need for radical reform in backroom services and facilities that increased no end under the previous Government. It was obvious to me and many senior managers that Labour deliberately politicised public services in their favour and created targets and inspection regimes to support a left wing ethos. A number of posts, recruitment and selection processes were changed to support that left wing outlook. ACPO officers were given bonuses to promote minority groups. There are whole departments for Equality and Diversity, Corporate Planning Teams, HR Management at several levels, increase in ACPO numbers, bean counters of all descriptions to measure quantative and qualitative issues in the finest detail, the list seemed endless. The car park space at Police HQ was constantly increased to support these new recruits. I found exactly the same issue in local Government. Why do the public services all need separate backroom support? They don’t. My point is that the majority of the 900,000 public service jobs created by Labour were for this purpose and never got anywhere near the frontline. Huge savings could be made and the public would not notice. Chief Executive pay and numbers being another example. Is there a need for five council authorities in Somerset?
Finally, are MP’s included in a wage freeze? Have your pensions been set at CPI annual increases instead of RPI? Are you going to contribute a minimum of an additional 3% for your pension? Will you benefit from a maximum 1/60th accrued pensionable pay annually? Will you ensure receipts are produced for every expense claimed as everyone else is expected to do?
Reply: You are right that there is scope to reduce the back office. Yes, MPs have had increases in pension contributions taken off their pay, and have one of the highest contribution rates of any public sector group, and yes receipts are needed for all expenses.
May 15, 2011
Taking a long view, I want to stress that, over the years, there have been lots more people employed than before. Under the last government, for instance, the Guardian went wild. Classroom assistants were introduced and plastic policemen. In the 1970s, I seem to remember there were suddenly vast numbers of people employed whereas before that there were just Town Clerks, Teachers and Doctors/Nurses. The numbers have jumped really fast. Aren’t there more civil servants than soldiers? When my father in law broke his leg, an army of “workers” moved in and filled the house with stuff, people and so on.
Do you know what? I am getting fed up with supporting other people.
I am getting fed up with supporting Greece, Portugal, Ireland and possibly Spain.
I am fed up with supporting more people on invalidity benefits than there were wounded in the trenches in 1914-18, or who suffered in the blitz.
I am fed up with seeing people driving cars, going on the dole, having free housing and being freed from taxes at my expense.
And above all, I am getting fed up with the army of bludgers who put all this into practice.
Well, you did ask for our comments!
May 15, 2011
Mike
You are not alone.
May 15, 2011
All the regulation seemed to start in the 1970’s too, could it have been joining the EC that kicked the ball rolling?
Prior to that our lot did weights and measures and a bit of food standards and that was about it. I think it’s a few dozen Acts and several hundred sets of regulations now.
Of course over 90% of them originate from the EU.
May 16, 2011
In January 2006, a Minister in the House of Lords put the figure at around 50%; although this only appeared to include measures that had “a significant economic impact”.
http://www.parliament.the-stationery-office.com/pa/ld200506/ldhansrd/vo060109/text/60109w03.htm
c WA10-11
May 15, 2011
I think bonuses – except where there have been real efficiencies (savings or real output increases/improvemnets) should be abolished for the public sector. I recall in the year that there was not enough money for body amour there was enough for 47m MoD bonuses!
May 15, 2011
Bludgers, a good word that describes a consultant expert. That is what has gone wrong. If an MP uses his common sense to find a solution then that solution is usually sensible. However if an MP uses a bludger “Consultant expert” then after the inevitable power point presentation the solution will require many mor hours of work and is usually futile.
Dump the experts, govern by common sense. Get rid of the bludgers.
May 15, 2011
There is no increase in basic salary for at least two years. There is legal action over some contractual payments which are being withheld. There is a performance payment regime but I’m unsure whether there will be any cash for exceptional performance. Several years ago, people were not complaining so much about public sector workers when ‘times were good’. Public sector workers were not to blame for the financial crisis.
I have always thought that public sector pensions should be capped at a certain payment level (e.g. £30,000 now p.a. for a pension payment) and that senior managers should pay a pension premium/plan for extra payments.
Your questions:
Does a pay freeze mean a freeze to all age and experience related increments? – YES. With inflation, it is a definite pay cut and allowances which previously made up salary are being cut back including weekend working.
Does it mean no bonuses, or no increase in bonuses? – There is still performance pay but very limited
What is the approach to rewards for exceptional service or for hitting tough targets under a bonus plan? – A pat on the back….I will tell you in a couple of weeks if there is anything else (no bonus plan)
What happens to someone who gets promoted or takes on additional responsibilities? – There will be very few promotions over this public spending period, so we have been told. Of course, there is some more renumeration if you take on more responsibility.
zorro
May 16, 2011
Zorro, you make a good point about capping pensions at 30,000 – about 750,000 pot with inflation proofing in the private sector. It would be good if senior public sector workers had to invest as currently, as I know talking to senior civil service contemporaries, they feel little connection. Indeed they feel aggrieved that their generous benefits are being jeopardizedby the private sector rather than ascribing any blame to the profligacy of several generations of politicians who always overspent in good times.
May 15, 2011
At HSBC there was a 6% pay cut, in 2009 and it was considered lucky compared with other banks. I take the view that EVERYBODY must accept the risks. The public sector must accept their wages are subject to voters intentions too. If the public vote for for lower taxes then the public sector must accept lower wages.
May 16, 2011
I would portray the public sector as elitist and privileged. I would use those words. The coalition need their language to meet reality.
May 15, 2011
I’d prefer to see the overall pay bill frozen, rather than individual wages frozen. If the department kept within a cash limit agreed with the Treasury, then the required cuts would be achieved. But by allowing departments more flexibility they could manage their resources in the best way for them. This would allow them to reward good performance and hitting targets; they could increase the pay of the lower paid if they wanted to. Some departments might even find they can lower their overall staff numbers whilst maintaining services because they can properly reward their best staff. As government seems to be full of managers on six figure salaries let them show they’re worth it by being allowed to manage their own people rather than being micro-managed from the Treasury or Parliament,
May 15, 2011
Inflation is the Achilles Heel of the coalition’s economic strategy. Inflation imported through massive devaluation is the “wrong kind” of inflation from a fiscal point of view. It threatens to undermine the Government’s growth strategy and sabotage its budget deficit reduction programme.
Surely we learnt in the 1970s that semi-permanent incomes policies are no answer. Pay freezes can be effective for a short time, certainly no longer than two years and probably less. They then unwind as avoidance takes hold and anomalies accumulate. How about public sector workers just above the low pay threshold for instance?
The Treasury judged that a tax on bankers’ bonuses would only work for one year. Why should incomes policies for others be so different?
Keeping official interest rates near to zero is now part of the new Foot-style “social contract” to persuade people to accept falling living standards. But this policy is causing today’s inflation and will inevitably prevent the return to normal growth that the current economic models are programmed to predict.
May 16, 2011
Why on Earth do public servants with an established pay and pension scale get bonuses? By what criteria could they conceivably be measured; the logic would be that if an individual did not get a bonus then he must be failing at his job? As there should be no guarantee anyway that a bonus would ever be paid, there should be no complaints if the whole concept was stopped. Who could claim that they would have a right to something that implies only that they have done their job satisfactorally? It is not difficult to image the press headlines, nor the reaction of the rest of the private sector workforce. Stop all state bonuses at a stroke.
May 16, 2011
During the tenure of Harold Wilson as prime minister when the situation in Britain seemed worse than today the government attitude was “export or starve”, and to save and not spend on the high street was considered the right way.
As a civil servant at that time our wages were “frozen” for about three years and inflation was such that when we were eventually awarded cost of living wage settlements the amounts were in the order of 30%.
In those days there were no such devices as “bonuses”. You were expected to do your job as required and “fiddles” like bonuses had not been invented.
We managed to live without all the handouts expected today and there were unavoidable sacrifices like holidays which now days seem to be classed as essential.
May 16, 2011
In terms of constant prices, total public sector payroll costs need to fall by about 20% over 5 years. I’m not really bothered how it is done.
May 16, 2011
I was thinking about something Nick Clegg was saying about “doing the right thing” by creating a coalition with the Conservatives. Of course David Cameron didn’t come up to Nick Clegg and say “Listen mate we need to to save the country so join with us.” What clearly happened is that when the election looked hung, the Liberals spent some time with the Mandarins from the Treasury who told them listen “we’ve run out of money you need to join the Conservatives and cut spending following this plan.” I’m sure Nick Clegg asked to join Labour and was told that Gordon Brown and Ed Balls was completely bonkers and Labour were toxic and would bankrupt the country.
So the plan presented to the LibDems (and the Conservatives) was a classic muddle through the middle. To increase taxes a little, to allow inflation to eat away at our debt a little, to cut pubic sector pensions a little, to reduce NHS costs a little, to reduce the welfare bill a little. In return the BofE would hold back interest rates a little and stop house prices collapsing. The only problem with this plan is that it could not do anything about growth – and what we have is a near zero growth economy. This does nothing for tax revenues, movement from public to private sector employment and debt repayments.
I think the coalition were told its going to be a tight scrape – but I’m not convinced that we’re getting out of the tight scrape. I don’t see Ireland or the US growing that much and I see the BRIC countries eroding our economy.
May 17, 2011
If all of the spend, internal and overseas, on things that government has no business doing, and in most cases there is no public support for, was axed, then those working honestly on core public services could still be paid properly.
This “share the pain” stuff is indiscriminate. It’s political cowardice.
May 18, 2011
For me the most interesting graph (below) of this week was from the BBC. What it shows is inflation rising at a constant rate since 2002 – with a dip during the 2009 credit crunch. This is not just inflation this is constant increasing inflation.
http://www.bbc.co.uk/news/business-13421614
The Government needs to review the roles of the BofE MPC. In the inflation graph from the ONS (below) it only shows inflation since the crunch – the narrative they use is that inflation is a blip – but it is clear from the larger graph (above) it is a much much longer term trend – that has spanned 10 years.
http://www.statistics.gov.uk/cci/nugget.asp?id=19
This trend is caused by growth in the developing world. This will not go away and will only increase. Both India and China have only just started growing, with greater populations in each country than the US and EU combined – they will dwarf demand from the west. With only 10% of people paying tax in India they still have huge growth potential.
Second the MPC are targeting wage inflation, not cost inflation. They cannot control cost inflation from the developing world, which is where most of our cost inflation comes from. This graph (below) from moneyweek shows how interest rates are correlated with average earnings and not cost inflation. Either through a complex round about way, unconsciously or through deceit the MPC has targeted wage inflation and will push interest rates up when private sector wages wages go up.
http://www.moneyweek.com/news-and-charts/economic-indicators/inflation/05-wage-rises-inflation-indicator-00005
If I were in Camerons’ and Osbornes’ shoes I would start by taking a long hard look at the MPC and say that they are aiming at the wrong inflation target for the wrong reasons. What is needed, and frankly all that is practically possible, is that private sector wage inflation ONLY needs to be targetted using interest rates by the MPC. Trying to do anything else is delusional. However, as we’ve seen, because cost inflation can’t be controlled by interest rates, the Government needs to decouple cost inflation from public sector wage inflation so that public sector wages don’t spiral out of control with cost inflation. So this leaves the MPC targetting private sector wage inflation and the Government targetting public sector wage inflation, using what ever index they choose. So the MPC needs to change – or their repuation will be trashed (as inflation keeps rising – as it will) and public sector pay will sprial out of control (as it will if it is not decoupled). I have no doubt that what I’m saying is spot on.
May 21, 2011
Many teaching assistants across the country have had their pay cut by as much as 3k+ quite a cut when most are on less than 15k a year.